Posted
by
samzenpus
on Thursday July 17, 2014 @06:20PM
from the we've-got-some-rules-around-here dept.

An anonymous reader writes On Thursday, Benjamin M. Lawsky, the superintendent of financial services, announced proposed regulations for virtual currency companies operating in New York. The "BitLicense" plan, which includes rules on consumer protection, the prevention of money laundering and cybersecurity, is the first proposal by a state to create guidelines specifically for virtual currency. "We have sought to strike an appropriate balance that helps protect consumers and root out illegal activity—without stifling beneficial innovation," he said in a statement.

Anyone with an IQ above room temperature has long known that if Bitcoin was accepted as a medium of exchange it would be treated like any other and subject to the appropriate taxes and has no problems with being so.

Part of the idea behind bitcoin is that regulations would be difficult to enforce. Not impossible, because if you're buying Stuff with bitcoins than you still need a delivery address. But difficult. If I want to, say, hide my illicit income, or shuffle funds off to a country under embargo, or donate to an organisation no bank is willing to do business with, or hide a big pile of wealth while declaring bankruptcy, or do some online gambling in violation of a law forbidding such businesses, or pay someone und

I have heard people make the same argument about self reporting taxes in general, easy to lie and hide income, unless you get audited of course. That is where enforcement will probably happen, they are not going to track and tabulate every transaction, but just like every other business and individual there will be a chance of audit. So using BTC will have the same basic risk as any tax avoidance, works fine unless the dice roll against you. It does not impart any significant extra security.

I take it you've never studied forensic accounting, or met a forensic accountant? (I have both, as it's a specialty my wife (an accountant) was looking at going into.) It's actually very hard to make funds "disappear" unless they never "appeared" in the first place. The only way to hide illicit income is to never visibly spend it and never take traceable possession of it. You might be able to hide a big pile of wealth - but you will leave traces that you moved it. Paying someone under the table? Same

Would bitcoin make it easier, though? Considering that 'accounts' can be created at will, even for just a single transaction in and out, it's going to take a great deal of effort for a forensic accountant to pierce the trail together. Effort justified to go after organised crime, but not the petty criminal who just wants to do some gambling on an offshore casino. Potentially with bitcoin the police would need to call in a forensic accountant to spend days going through pages of transactions in order to figu

For penny-ante criminal activity, yeah, BTC might make it easier for perpetrator and harder for the cops if he uses his head and a little common sense.

But for the bigger stuff and full blown fraud? (I.E. anything that's going to bring the full weight down on your head.) I don't think BTC will change things much unless you're willing to never, ever touch the hidden or ill gotten money that you've somehow managed to never have in your name in traceable records in the first place. Once it's traceable, I sus

And the appropriate way to treat it is like cash. Can you do untraceable cash deals and avoid taxes? Yes, but it's not legal to do so. Bitcoin is the same. I believe that the law already covers this anyway, technically you must pay tax even when bartering. Will people abuse this? Of course, but no more so than they do with cash today.

The thing is, I don't see why any new law is needed. If I pay you cash to fix my sink, tax is supposed to be paid, likewise, if I trade you supper for you fixing my sink,

Since there seems to be confusion and disagreement regarding how to treat BTC and other virtual currencies, I imagine all a new law would really contain is explicit clarification of existing laws so businesses and courts have a clear unambiguous base to work from.

They're doing this because legislators are effectively being paid to legislate, rather than use the existing laws to their best advantage. A previous government in Britain created one new criminal (felony) offence for every day that it was in office, with a significant proportion bordering on the silly, insane or just plain stupid. It is, for instance, now illegal to explode nuclear weapons in Britain.

I do suspect though that were anyone to actually do this, the Victorian laws forbidding the unauthorised us

yeah, but a lot of people believe that if you make something difficult to regulate somehow that makes it legal. Kinda like installing hidden compartments in cars, it does not make transporting drugs and less illegal and advertising that you want to help people break the law does not put your garage in a good place.

That's fine. It will never happen, but it would be amazing if you could pay your income taxes with bitcoin. That's how the banks getcha. You have to use their dollars to pay your taxes, and you can't get around that, which means you always have to deal with the bankers, and they always get their taste. If you could remove them from the equation, that would free mankind.

What would actually happen, though, is you'd still have to pay taxes on bitcoins you received as income, just with the value converted to do

You know how a ponzi scheme works http://en.wikipedia.org/wiki/P... [wikipedia.org]. Those at the top of the pyramid sell the scam to those at the bottom. Those higher up the pyramid make a load of money whilst those at the bottom make nothing as the scheme collapse. Now bitcoin, how easy was it to generate money at the begging for free, all those people had to do was sell the scheme to others, who would find it progressively harder to generate coins, whilst those at the begging cashed in for millions, hmm, ponzi currency

> The IRS will know who you are when you bought your bitcoin from a regulated exchange.

OK... I suppose so (still doesn't address the "multiplicity of jurisdictions" problem), but that is a quite different scenario than that posed by the poster I replied to, who wanted bitcoin "criminalized and shut down" via legislation.

It's worse than that, actually: It's done from the idea that regulation is "naturally" inherently necessary, and that they are competent to pick the right rules. When the very genesis of bitcoin in large part stems from regulatory over-reach, like with the "anti-money laundring" witchhunts, as if money stinks. It doesn't, but dealing with any money at all has become an onerous task for everyone, moreso for people doing legit things, because of all the fear that it might.

Doesn't this create an awkward tension between two objectives of lawful authority? On the one hand, collecting taxes on income generated by commerce; on the other, extinguishing that commerce that tempts the wrath of other laws of the land (and with it the taxable income that commerce ostensibly generates).

Yes..... since Bitcoin transactions involve the public ledger and miners which are all stored out of state,
every time bitcoin changes hands it is simultaneously interstate commerce and foreign commerce,
because the internet itself is inherently interstate.

Not really. North Carolina has a ton, Charlotte having the 2nd most financial HQ's in the company only behind NY, with San Fran as a distant third. Both of these locations, even including super-blue San Fran, aren't as meddlesome when it comes to this kind of stuff.

If this is about taxes (can't tell from TFA), aren't these business already taxed on their profits like any other business? It seems to me that this is all a bit unnecessary, and likely to drive away people who seek to start Bitcoin based companies.

A recent IRS advisory said virtual currency is to be treated as an assent not a currency. So lets say you receive some bitcoins. At some future date you spend these bitcoins. Since these bitcoins are an asset you have to account for their gain or loss in value for the days that you held them and declare a loss or gain on your taxes. In short spending bitcoins has the paperwork overhead of selling stocks, its not like spending dollars at

You didn't botch the math, you botched the accounting. Inventory accounting methods such as FIFO wouldn't apply.

No one said you had to use FIFO. You have to pick the coins you are using somehow, FIFO is one of various options. Personally I would probably use LIFO, spend the newer coins first, hang on to your oldest coins. That way if I hold any for over a year they can be cashed out and taxed at a lower rate, long term capital gains. Hopefully, have to check with an accountant on that.

The IRS and many people, it seems, don't understand BitCoin. It doesn't help that the name also misleads in this way.

BitCoin is not analagous to actual coins, objects which can be exchanged. BitCoin is a distributed peer to peer bank.

Why is it a bank? A bank is no longer a store of actual physical objects, it is merely a transaction ledger. Transactions are logged that determine the number of tokens that a given account controls. Account balances and so on are merely a digest of this transaction log - the l

In what way does that matter for the purposes of the IRS, or of people investigating money laundering? The IRS wants to know your income, and doesn't really care if you got it through a bank, in small unmarked bills, BitCoins, or whatever.

Yeah its not like millions of dollars worth of bitcoins disappeared from Mt Gox without anybody being held to account... oh wait!

That happens with US dollars too. Former NJ Governor and former US Senator John Corzine lost/misplaced hundreds of millions of dollars at the financial company that he ran. He did not go to jail. Of course it helps to be a leading Democrat and friend of the President of the United States. He was on Obama's short list for a cabinet position and Obama had publicly cited Corzine as one of his best allies in the Senate. For some reason the US Justice department didn't feel a need to send him to jail.

There will always be corruption and favoritism, but it is still better to have a framework for addressing misdeeds then simply leaving it at 'well, rich people will get away with it anyway, so why bother making it illegal?'

... likely to drive away people who seek to start Bitcoin based companies.

A business can accept bitcoins for payment and never touch a bitcoin nor ever be at risk for price fluctuations.

Various exchanges provide merchant services where a merchant gives sale info to the exchange, the exchange converts the dollar amount to bitcoins and provides the merchant with the converted amount and a bitcoin payment address (one belonging to the exchange). The customer essentially makes the bitcoin payment to the exchange. When the exchange confirms the payment they credit the merchant's a

I'm not sure how that's relevant to my point. I was talking about Bitcoin based businesses such as exchanges, mixers, etc.

If you have a company that sells computer parts, but accepts Bitcoin via a third party merchant service among other payment methods, I would think they aren't directly subject to these regulations and certainly aren't reliant upon Bitcoin to survive. Perhaps the third party would have to charge more for the transfer if they were based in NY.

If your within their Empire and practicing "money" changing you may have to:
have some bond or trust account in United States dollars
name and contact information to some expected level of ID standards
disclosures risks.
Anti-money Laundering Compliance and reporting and hire more staff.
and a few other new tasks
Think of it as been a "bank" somewhere that has just got a treaty request from the United States.
Have fun filling out the new virtual forms.

Bitcoin is inherently the opposite of anonymous. Every single transaction is forever part of the blockchain, free for anybody and everybody to download, and even compulsory if you want to have a local wallet.

The only way to anonymize your coin is to use a service which mixes up your coins so that it's nearly impossible to trace where they went once they go into the system.

Create a new BitCoin account, transfer some funds there and claim "I don't know whose account that is and I don't remember why I sent money there" and you've got a weak plausible deniability, I mean it's not like I have to keep track of my cash that way, just because I was given a $20 bill with serial number 1234567 from the bank it doesn't prove anything when it shows up in some drug dealer's roll of cash. Or for that matter, that a $20 bill once used to buy drugs is now in my hands. Money kept in secret m

You don't even need to transfer bitcoins there yourself. Whenever you receive bitcoins from someone, have them sent to a new wallet. If you can keep the transaction secret, the bitcoins can be kept secret too.

we believe that setting up common sense rules of the road is vital to the long-term future of the virtual currency industry, as well as the safety and soundness of customer assets.(We think the situation at Mt. Gox, for example, made that very clear.)

It seems to me the Bitcoin community has been doing just fine without regulatory "assistance". Sure some people got burned by Mt. Gox, but I'm okay with that being one of the risks if it allows me to avoid government meddling. The State is a hell of a lot more of a threat to me than some shyster like Karpeles.

Sure some people got burned by Mt. Gox, but I'm okay with that being one of the risks if it allows me to avoid government meddling.

That's nice, but the people who got burned didn't take it that stoically.In fact, a lot of them seemed surprised and angry at discovering that putting their stuff in a shady unmonitored site for trading children's online card game cards was a risky thing to do.

Between the scams and incompetence these incidents are so common that I don't know by what measure you could say the community is "doing fine". Though I suppose the scams at least keep up the velocity a bit.

In fact, that's not nice at all. If the Bitcoin is to be a currency, it should not be viewed as a risky investment or something like that. Otherwise, the chances are null it will become a real player in the currencies market. On another hand, if you are to provide some kind of guarantees to eventual users, you also have to cover the charges for that service.

And at the end, why should someone use bitcoins if they are equivalent to any other trading system? Given the charges to offer some legal guarantees, gi

If NY does this a new type of business will be created in which transfers of cash flow to branches outside of NY and are then converted to or from bitcoins. One could even work this into a charge card in an automated way. In other words NY will have the lead yanked out of its pencil.

The whole point of bitcoin is that it is an anonymous currency which the government can't track. Once it is "regulated" nobody will need to use it! They will find another way to exercise their right to transact in private.

The transaction log is public. BitCoin *is* the transaction log (and the protocols for updating it).

Every transaction is visible, by design. BitCoin can't work otherwise.

If you only ever trade BitCoin that you mined yourself on your own private hardware, you might have a shot at anonymity. But if you make any kind of exchange transaction to buy them that someone can track, then you can be associated with your entire transaction history. I guarantee that right now there are programs in t

So the regulations that allowed fraudulent investment products( leading to the 2008 housing bubble and subsequently global financial collapse) worked so well. Obviously these regulations will be equally as efficient in *crowding out new industry players*cough cough... Rooting out illegal behaviors and * shafting cough cough* protecting consumers. https://m.youtube.com/watch?v=... [youtube.com]

Bitcoins, which lost 45 percent of their value after skyrocketing to more than $1,100 last year, are poised to tumble further, according to the latest Bloomberg Global Poll of financial professionals.

Fifty-five percent of those surveyed said the virtual currency trades at unsustainable, bubble-like prices, according to the quarterly poll of 562 investors, analysts and traders who are Bloomberg subscribers. Another 14 percent said it's on the verge of a bubble. Only 6 percent of respondents said a bubble isn't forming. The remaining 25 percent were unsure.

Merchants including Expedia Inc., Dish Network Corp. and Overstock.com Inc. have decided to accept bitcoins. A total of 63,000 businesses now take the virtual currency, and people have set up more than 5 million wallets to keep their digital holdings, according to CoinDesk, which tracks its use.

That enthusiasm contrasts with opinions expressed by finance-industry leaders. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, 58, has said bitcoins probably won't last as a currency after governments subject them to rules and standards akin to those for other payment systems. Billionaire investor Warren Buffett, 83, has said he'll be surprised if bitcoins last 10 or 20 years.

A Bloomberg poll in January showed investor doubts in the virtual currency as well. Almost half of 477 international investors, analysts and traders who are Bloomberg subscribers were bearish on bitcoins and said they would sell them. At the time, bitcoins traded about 30 percent above current levels.